Rent to own questions!

11 Replies

Hi! I have a property in West Hartford, CT that I have a potential rent to own buyer/tenant for. Questions:

What is the percentage, normally used, for the non-refundable down payment?

Is there a rule of thumb as to what percentage of rent is to go towards purchase?

Anything else important to note?

Thank you!

Originally posted by @Ryan Deasy :

Hi! I have a property in West Hartford, CT that I have a potential rent to own buyer/tenant for. Questions:

What is the percentage, normally used, for the non-refundable down payment?

Is there a rule of thumb as to what percentage of rent is to go towards purchase?

Anything else important to note?

Thank you!

There is no Non- refundable down payment.  What you are talking about is a non-refundable Option Consideration.  The OC is 100% of the cost of the Option to Buy Agreement.

No credits should be given.

The LO is a collection of three separate agreements/contracts.  All three contracts are with different people...even though we're talking about the same property, at the same time, and all three people have the same SS#:

1 - Lease Agreement - Between the Landlord and the Tenant
2 - Option Agreement - Between the Owner and the Tenant.
3 - Purchase Agreement - Between the Owner and the Buyer

Do not refer to either of the other two agreements in any one of the agreements.  They must be kept seperate.  

@Joe Villeneuve thank you for all of that information. Extremely helpful. I think i understand a bit better. Also, do you engage a mortgage originator to qualify them or no? Thank you.

@Ryan Deasy - everything Joe said.....and we do we use a mortgage broker to analyze their current situation.  All she does is run their credit, talk to them about their financial situation and let us know a time frame they will need in order to be able to qualify for the mortgage.  We add an additional 6 months to whatever she tells us and also offer a one year extension for a fee.

We also use a lawyer that owns a title company to draft the paperwork and we have our tenant buyers wire him the down payment money that way there is a paper trail when the mortgage broker asks two years later where the down payment came from.

We have been doing these since 2013 and absolutely love them.  If done correctly from the beginning you will be successful in having your tenant buyers get the mortgage.  Those that want to do the work of course.

Good luck with your transaction!

Originally posted by @Joe Villeneuve :
Originally posted by @Ryan Deasy :

Hi! I have a property in West Hartford, CT that I have a potential rent to own buyer/tenant for. Questions:

What is the percentage, normally used, for the non-refundable down payment?

Is there a rule of thumb as to what percentage of rent is to go towards purchase?

Anything else important to note?

Thank you!

There is no Non- refundable down payment.  What you are talking about is a non-refundable Option Consideration.  The OC is 100% of the cost of the Option to Buy Agreement.

No credits should be given.

The LO is a collection of three separate agreements/contracts.  All three contracts are with different people...even though we're talking about the same property, at the same time, and all three people have the same SS#:

1 - Lease Agreement - Between the Landlord and the Tenant
2 - Option Agreement - Between the Owner and the Tenant.
3 - Purchase Agreement - Between the Owner and the Buyer

Do not refer to either of the other two agreements in any one of the agreements.  They must be kept seperate.  

Joe,

As the three documents would be independent as you recommended, this means the person can sell or otherwise break the ownership they have in any one of the agreements. There are no ties between them so there are no ties which imply the option is only valid if the person continues to pay the rent or they continue to live in the property. Is this one of the desired outcomes and why you want the three documents to be independent of each other?

Originally posted by @John Corey :
Originally posted by @Joe Villeneuve:
Originally posted by @Ryan Deasy :

Hi! I have a property in West Hartford, CT that I have a potential rent to own buyer/tenant for. Questions:

What is the percentage, normally used, for the non-refundable down payment?

Is there a rule of thumb as to what percentage of rent is to go towards purchase?

Anything else important to note?

Thank you!

There is no Non- refundable down payment.  What you are talking about is a non-refundable Option Consideration.  The OC is 100% of the cost of the Option to Buy Agreement.

No credits should be given.

The LO is a collection of three separate agreements/contracts.  All three contracts are with different people...even though we're talking about the same property, at the same time, and all three people have the same SS#:

1 - Lease Agreement - Between the Landlord and the Tenant
2 - Option Agreement - Between the Owner and the Tenant.
3 - Purchase Agreement - Between the Owner and the Buyer

Do not refer to either of the other two agreements in any one of the agreements.  They must be kept seperate.  

Joe,

As the three documents would be independent as you recommended, this means the person can sell or otherwise break the ownership they have in any one of the agreements. There are no ties between them so there are no ties which imply the option is only valid if the person continues to pay the rent or they continue to live in the property. Is this one of the desired outcomes and why you want the three documents to be independent of each other? 

When you give credits, or when the agreements are tied together, you run the very real risk (I've seen this happen more than once...and have heard from others similar stories) of having the tenant buyer taking you to court and having the agreement reclassified as a Land Contract, which could/would make all of the rent payments credited towards the purchase. 

Originally posted by @Joe Villeneuve :

Originally posted by @John Corey:
Originally posted by @Joe Villeneuve:
Originally posted by @Ryan Deasy :

Hi! I have a property in West Hartford, CT that I have a potential rent to own buyer/tenant for. Questions:

What is the percentage, normally used, for the non-refundable down payment?

Is there a rule of thumb as to what percentage of rent is to go towards purchase?

Anything else important to note?

Thank you!

There is no Non- refundable down payment.  What you are talking about is a non-refundable Option Consideration.  The OC is 100% of the cost of the Option to Buy Agreement.

No credits should be given.

The LO is a collection of three separate agreements/contracts.  All three contracts are with different people...even though we're talking about the same property, at the same time, and all three people have the same SS#:

1 - Lease Agreement - Between the Landlord and the Tenant
2 - Option Agreement - Between the Owner and the Tenant.
3 - Purchase Agreement - Between the Owner and the Buyer

Do not refer to either of the other two agreements in any one of the agreements.  They must be kept seperate.  

Joe,

As the three documents would be independent as you recommended, this means the person can sell or otherwise break the ownership they have in any one of the agreements. There are no ties between them so there are no ties which imply the option is only valid if the person continues to pay the rent or they continue to live in the property. Is this one of the desired outcomes and why you want the three documents to be independent of each other? 

When you give credits, or when the agreements are tied together, you run the very real risk (I've seen this happen more than once...and have heard from others similar stories) of having the tenant buyer taking you to court and having the agreement reclassified as a Land Contract, which could/would make all of the rent payments credited towards the purchase. 

Joe,

Let's agree that the option consideration is just that, option consideration. Also, I am not saying that one should put the contracts together or link them. I am just seeking your view that as independent contracts, does that improve or increase the right to terminate one while retaining another (break the lease, keep the option running). Or, you can sell on the option while continuing to operate the lease.

In terms of land contracts, the state will mater. Not all states recognize or have land contracts. That said, I think we could broaden the point to 'equitable interest'. That it might be possible for someone to argue in court that they had an equitable interest in the property so a foreclosure process is required rather than just an eviction if they default on the lease.

Your views?

Originally posted by @John Corey :

Originally posted by @Joe Villeneuve:

Originally posted by @John Corey:
Originally posted by @Joe Villeneuve:
Originally posted by @Ryan Deasy :

Hi! I have a property in West Hartford, CT that I have a potential rent to own buyer/tenant for. Questions:

What is the percentage, normally used, for the non-refundable down payment?

Is there a rule of thumb as to what percentage of rent is to go towards purchase?

Anything else important to note?

Thank you!

There is no Non- refundable down payment.  What you are talking about is a non-refundable Option Consideration.  The OC is 100% of the cost of the Option to Buy Agreement.

No credits should be given.

The LO is a collection of three separate agreements/contracts.  All three contracts are with different people...even though we're talking about the same property, at the same time, and all three people have the same SS#:

1 - Lease Agreement - Between the Landlord and the Tenant
2 - Option Agreement - Between the Owner and the Tenant.
3 - Purchase Agreement - Between the Owner and the Buyer

Do not refer to either of the other two agreements in any one of the agreements.  They must be kept seperate.  

Joe,

As the three documents would be independent as you recommended, this means the person can sell or otherwise break the ownership they have in any one of the agreements. There are no ties between them so there are no ties which imply the option is only valid if the person continues to pay the rent or they continue to live in the property. Is this one of the desired outcomes and why you want the three documents to be independent of each other? 

When you give credits, or when the agreements are tied together, you run the very real risk (I've seen this happen more than once...and have heard from others similar stories) of having the tenant buyer taking you to court and having the agreement reclassified as a Land Contract, which could/would make all of the rent payments credited towards the purchase. 

Joe,

Let's agree that the option consideration is just that, option consideration. Also, I am not saying that one should put the contracts together or link them. I am just seeking your view that as independent contracts, does that improve or increase the right to terminate one while retaining another (break the lease, keep the option running). Or, you can sell on the option while continuing to operate the lease.

In terms of land contracts, the state will mater. Not all states recognize or have land contracts. That said, I think we could broaden the point to 'equitable interest'. That it might be possible for someone to argue in court that they had an equitable interest in the property so a foreclosure process is required rather than just an eviction if they default on the lease.

Your views?

Yes.  You petty much covered it.